Energy Prices Strain Consumers and Businesses

With the prime heating season on the horizon, energy costs are an important financial concern for businesses and individuals. As part of an overall operating budget – whether at home or in a commercial setting – energy spending can tip the scales, representing the difference between managing costs and losing financial ground.

With inflationary pressure nagging at household budgets, it is more important than ever to pay the right price for energy. Costs continually rise and fall, reflecting global market influences and local pricing pressures. But are UK businesses and consumers paying too much for energy?

Independent Report Shines a Light on High Energy Costs

An Oxford professor recently shared findings from an independent study conducted at the government’s urging. The study looked at energy spending and ways the cost to consumers might be reduced, without sacrificing efforts to slow climate change.

According to Professor Dieter Helm, the findings’ author, businesses and individuals may be paying more than they should be paying for energy, and contributing too much of their earnings in the interest of environmental protection. As part of his conclusions about energy, Prof Helm shared his belief that energy-users have not realised the pricing benefits of lower costs and greater efficiencies in the energy sector.

The report illustrates trends showing how gas, oil, and coal prices have fallen lower since 2014, in contrast to projections made by the government. Renewable energy is also shown to have fallen in price, based on efficiencies and improvements in battery technology, among other things. In the report, Prof Helm indicated these price reductions should have led to “lower, not higher, costs”, as well as “greater scope for energy efficiency.”

As price competition in energy markets grew, it is thought energy users should have seen direct benefits of lower costs within the sector. On the contrary, according to the report, only limited benefits trickled down to end users, with many consumers experiencing higher levels of energy spending, rather than price reductions. Even as households turned to various funding alternatives, such as no-credit-check loans, personal instalment financing, and credit cards to keep pace with household spending obligations; falling oil, gas, and coal pricing have not provided relief for families.

Are Green Energy Taxes to Blame?

As non-renewable energy prices declined in recent years, energy-users have continued to pay special energy taxes aimed at providing green generation alternatives to fossil fuels. Green energy taxes account for approximately 20 per cent of household energy bills. As a result of the study’s findings, Professor Helm made the following recommendations:

  • List the legacy cost of green energy charges like the Renewable Obligation as a separate entry on energy bills. The move would show the true, lower cost of actual energy charges not related to the green initiatives.
  • Create a single default tariff to replace the variable rate tariffs currently in use. The change would cap profits made by energy companies.
  • Exempt industrial energy users from paying the green energy taxes.
  • Establish a separate body to administer the National Grid and regional energy distribution companies, reducing the responsibility of Ofgem.
  • Bring carbon prices and carbon taxes to a standardised level across the country.

The recommendations come on the heels of a recent draft bill, promising to cap energy tariffs. Although it is designed to protect standard variable tariff (SVT) customers, it has come under fire by those fearful it will actually raise energy costs for many users.

According to Helm, failing to implement his recommendations could exacerbate a crisis mentality within the energy industry, undermine supply stability, and slow the transition to electric transport, among other negative outcomes.

Fending-off inflation calls for spending discipline, including a close look at energy costs. Conservation and smart budgeting can help save money at home, but wider relief from government initiatives may be required, in order to preserve long-term energy affordability for families and businesses.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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